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TheStreet Open House

Discover Financial's Profit Falls 8 Percent In 3Q

By ALEX VEIGA

LOS ANGELES (AP) â¿¿ Discover Financial Services' net income fell 8 percent in the third quarter, as the lender set aside more funds to cover potential loan losses.

The credit card issuer also said Monday that sales volume for its namesake credit card rose 3 percent to about $28 billion in the July-September period versus a year earlier, while card loans rose 4 percent to $50.4 billion. Overall loans, including private education and personal loans, increased 5 percent to $62.7 billion in the quarter, which coincides with the annual back-to-school spending season.

"These results show that in a tepid economic environment, Discover continues to achieve profitable loan growth," David Nelms, Discover's chairman and CEO, told Wall Street analysts during a conference call.

Even so, the Riverwoods, Ill.-based company's latest earnings just missed Wall Street expectations, and its shares dropped about 4 percent in after-market trading Monday.

Credit card issuers such as Discover typically benefit from an improving economy and increasing consumer spending. When cardholders charge more on their Discover cards, the company earns even more in interest income and a variety of fees.

Between January and August, the most recent figures available, the economy added an average of 180,250 jobs a month. Unemployment, meanwhile, was 7.3 percent in August, down from 7.9 percent in January.

Last week, American Express and Capital One Financial each reported increased spending by cardholders.

The federal budget standoff that led to a 16-day partial government shutdown earlier this month didn't have an impact on sales or loan growth at Discover, Nelms said in an interview.

But the executive noted that if consumers felt more certain about the economy, government spending, health care and other concerns, Discover's sales and loan growth would be stronger.

"I do not see consumers right now being willing to spend a little more or even gradually to increase their overall spending," Nelms said. "The consumer is still being very cautious."

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